Is The Market About To Crash?

Many years ago, someone pointed out to me that I needed to lose some weight. What a cheek!

But that “someone” was my General Practitioner, whom I have been with for decades.

He has no axe to grind. He has no product to sell. His only interest is my health. So any advice that he as to offer has to be taken seriously.

Snake oils and charlatans

Had he been some snake-oil merchant, I would have taken his advice with a huge pinch of salt.

Had he been someone talking up his own book or promoting the latest dieting fad, then I would have given him short shrift.

But he was neither of those things. His only concern was my well-being. He was trying to show me the way to leading a long and healthy life.

So, it was only sensible that I heeded his advice.

I became more conscious about the foods that I ate. I was more determined to exercise daily. Over time, I started to shed the pounds.

Sage of Omaha

There are some interesting similarities between my sagely GP and the equally sagacious Warren Buffett, who is better known as the “Oracle of Omaha”.

Buffett, who is arguably one of the best investors of our time, is renowned for speaking his mind.

He has nothing to lose by being candid. He is already one of the richest people in the world.

That is why his annual shareholder letters are read by millions.

This year’s annual letter was no exception.

Empty promises

He heaped praise onto Jack Bogle, who is the pioneer of low-cost index trackers.

He said that if a statue is ever erected to honour the person who has done the most for American investors, the hands-down choice should be Jack Bogle.

But he poured scorn on money managers who have amassed fortunes by promising investors large rewards, while delivering them nothing – or, less than nothing – of added value.

The beauty of Buffett’s newsletters is that there is something in there for everyone.

So whether it is the impact of unnecessary cost on our investing returns or the attraction of dividends, there is something for all of us to take away.

Up, up and away

My favourite takeaway this year was his insights into the recent stock market highs.

The Dow Jones Industrial Average appears to defy gravity, as it continues to close at record highs with each passing trading session.

But Buffett is far from worried.

As far as he is concerned, markets will decline – and panic could even set in – in the years ahead.

Unfortunately, no one can ever tell you when those market traumas will happen. Neither Warren Buffett nor his partner, Charlie Munger, knows when that will happen.

By the same token, economists and the media cannot possibly know when that will happen, either. But that has not stopped them from trying to predict the unpredictable.

They will try at length to identify systemic risk. But as Warren Buffett pointed out: “We spend a lot of time looking for systemic risk. But in truth, it tends to find us”.

Scary times

He has some important advice for us when those scary periods happen.

Firstly, widespread fear is the investor’s friend because it serves up bargain purchases.

He once said: “Don’t gamble, but watch for unusual circumstances. Excellent investment opportunities come about when superior businesses experience a one-time event that depresses its stock price in relation to its intrinsic value”.

Secondly, personal fear is our enemy. It is also unwarranted. But that is provided we avoid high and unnecessary costs and invest in conservatively-financed businesses.

Buffett’s investing style is really not that hard to fathom.

He looks for wonderful, cash-generating companies that he can buy for a fair price.

But the futures of those companies have to be predictable. If it can’t be predicted, then it stands to reason that it can’t be valued.

It’s really that simple.

That is our investing philosophy at the Motley Fool too. Take a look at what I mean here.

A version of this article first appeared in Take Stock Singapore. Click here now  for your FREE subscription to Take Stock – Singapore, The Motley Fool’s free investing newsletter.

Written by David Kuo, Take Stock - Singapore tells you exactly what’s happening in today’s markets, and shows how you can GROW your wealth in the years ahead.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.